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Economies of scale, faster deployment and format responsiveness, plus drastically reduced CAPEX (capital expenditures): All of these are reasons why it can make sense to move video transcoding and distribution from your company to a third-party cloud-based service.

At the same time, there are instances where it makes sense to keep transcoding and distribution in-house. Here’s how to decide when the cloud makes sense, and when it doesn’t.

The In-House Video Encoding Model

In the in-house model, content creators encode/transcode their own content, and then distribute it directly or indirectly to viewers. To do this, the content creators must install and maintain encoding/transcoding software and a dedicated server farm. They must also hire highly capable IT staff, because encoding/transcoding can be tricky.

The upside: “There can be many benefits to choosing to do encoding in-house, including the organization of your workflow, security, and whether you are editing your content using exceptionally large files” says Eric Quanstrom, COO of Sorenson Media, Inc. His company’s Squeeze Server platform provides automated encoding/transcoding to content creators, plus video encoding/transcoding in the cloud.

The downside: “You must stay current on the latest technologies and trends,” Quanstrom notes. “If your in-house service does not stay current, you could end up having invested millions of dollars to serve an ever-dwindling user base. That’s not exactly a good use of cash.”

That’s not all: “One of the biggest challenges of managing your transcoding in-house is planning for peak utilization,” cautions Jon Dahl, CEO and co-founder of cloud encoding services provider Zencoder, Inc. “It’s very typical in this industry to over-provision server resources by at least 30% and often, that is not enough,” Dahl says. “If you don’t plan for enough capacity, your content could queue, causing excessive delays in processing.”

Content creator Revision3 knows all about the challenges of in-house encoding/transcoding. “To simplify the process, we even developed a piece of software to push videos through our in-house transcoding farm,” says Revision3 CTO Rob DeMillo. “As soon as one of our producers had finished a show, this software automatically picked up the file for transcoding in the 10–12 most popular formats. But even with that tool, we spent a lot of time doing manual work ... correcting erroneous encodes and lost files.”

The Cloud’s Silver Lining

The hassles of in-house encoding/transcoding eventually convinced Revision3 to farm out its operations to Encoding.com. Its online encoding/transcoding platform gives content producers a one-URL path to ingesting, converting, and transmitting multiple format feeds online.

By moving encoding/transcoding into the cloud, content creators free themselves up from maintaining a dedicated encoding/transcoding server farm. This reduces CAPEX in purchasing and renewing hardware/software. It also eliminates the operating expenditures associated with running such a platform—not just ongoing support, but electricity, floor space, and human technician support.

Another advantage of encoding/transcoding in the cloud is that you pay for what you use, rather than having to maintain a fixed number of servers no matter how large or small your actual demand is.

“True cloud-based encoding platforms dynamically spin up and down servers to meet real-time demand,” says Encoding.com president Jeff Malkin. “And, as a software-as-a-service, it’s our job to maintain support for the most current formats and technologies. Along with our compression experts and live support availability, Encoding.com and other cloud encoding providers offer a compelling case for replacing in-house encoding infrastructure with a highly scalable, hosted solution.”

“Moving your video encoding/transcoding to the cloud trades all of these costs for a monthly fee,” adds Sorenson Media’s Quanstrom. “Yes, it could be argued that, once you’ve got the server farm up and running, it might cost you less to be encoding/transcoding in-house than paying a third-party to do it for you. But that equipment has a limited lifespan, and the base of formats it has to serve keep changing and expanding. So you won’t escape more CAPEX for long.”

Collectively, these advantages convinced Revision3 to move to video encoding in the cloud, and DeMillo is happy it did so. “We produce around 30 shows a week, each of which are transcoded into 10–12 formats and made available worldwide,” he tells Streaming Media. “We have found video encoding in the cloud to be cost-effective, scalable and flexible -- with very little human intervention.”

Is Security the Silver Lining’s Dark Cloud?

No solution is perfect. Every shiny silver lining comes with a cloud attached.

In the case of video encoding/transcoding in the cloud, the big issue is security. Once you delegate your content to a third-party -- and take it off your server farm -- you lose a degree of control.

But is using video encoding/transcoding in the cloud less secure? Logically, no: The cloud is less vulnerable to being hacked, thanks to its distributed nature and the anonymous locations of its hardware. Moreover, “The actual server facilities used by cloud providers like Amazon are extremely secure,” says Zencoder’s Dahl. “As long as the right architecture, auditing, and network-level security is used, the cloud can be secure enough for any type of content.”

But not all video in the cloud firms are created equal. This is why selecting a video in the cloud provider requires due diligence on the part of clients. “Your content is the heart of your business,” says Encoding.com’s Malkin. “You need to be sure that whomever you are entrusting it to has the facilities, operating procedures and redundancy to keep it safe and accessible.”

Encoding.com has taken its own advice to heart. “Because of the TV Everywhere initiatives, we are now managing a huge volume of premium content assets where security, massive file ingest and DRM packaging capabilities are must-have requirements,” Malkin says. “To meet this specific workflow requirement, and to fill the gap where public cloud platforms fall short, Encoding.com has built a private cloud encoding farm seamlessly integrated with its public cloud platform.”

Meanwhile, not everyone is worried about content theft. “Piracy is really only an issue if you use Digital Rights Management (DRM),” adds Revision3’s DeMillo. “Our company doesn’t use DRM, so we are not worried about other people redistributing our content on the Web. In fact, it is good for our brand exposure and growing our audience.”

When to Stay In-House for Video Encoding

There are times when taking video outside of the company is a bad idea. A case in point: “If you are shooting high-resolution video files and editing them in-house, it makes no sense to store that video off-premises,” says Sorenson’s Quanstrom. “These files demand a lot of bandwidth. Moving them back and forth across the Internet can be a real time-waster.”

In the same vein, storing graphics and other post-production files in the cloud isn’t smart, if you are using these files during video editing. If you have to pull this content off the web, their large file sizes can cause bottlenecks on your LAN’s internet links.

A Hybrid Approach to Video Encoding

When you put the pros and cons of video encoding/transcoding in the cloud together, a clear pattern occurs: It makes sense to use the cloud to encode/transcode finished content for distribution in multiple formats. It does not make sense when the material is still in post-production, and the file sizes are large.

A hybrid approach is possible for companies that have invested heavily in encoding/transcoding technology. In such cases, a third-party provider could become an add-on to the company’s existing system: taking responsibility for transcoding into formats that the content creator’s own system does not support.

Over time, the third-party provider will end up taking on more responsibility as older formats fall away. Eventually, the client company’s own server farm will go dormant, its CAPEX justified by being used to the end of its projected lifespan.

“The key is to find solutions that best suit the business and technical requirements for your company,” says Encoding.com’s Malkin. “The good news is that this does not have to be an all-or-nothing decision. A transition is possible that uses the best of both worlds. Many of our larger customers have migrated more and more processing to us over time.”

Spec’ing Out Cloud Solutions

Based on the research done for this article, it is clear that video encoding in the cloud makes good sense for content creators.

This said, moving to the cloud is not a step to be taken lightly. There are many factors that should be considered before moving ahead.

Of these, the most important question to be answered is, “Why are we encoding/ transcoding?” As stupid as this question may seem, it is worth asking: Many companies began streaming media years ago just because it seemed like the thing to do. Besides, in the days of Real and Windows Media Player, there were few formats that had to be supported. In fact, some companies simply chose a single format and stuck with it; confident that their fans would download the necessary player and cope.

Today everything has changed: Not only have a multitude of formats taken root, but today’s consumers expect content to be served in whatever format works with their tablets/smartphones/computers/internet TVs.

Serving all of these formats can be expensive: This is why content creators need to know why they are encoding/transcoding -- who they are trying to reach, and on what devices -- and what formats make the most sense to their particular business cases. Serving all formats just because “that’s what we have always done” may not make sense anymore, especially older formats that are on their way out.

“Many of our customers, especially those where video encoding is not a core competency, have come to us requesting that we simply ‘make their video work’ across all popular mobile devices and web browsers,” Malkin comments. “In response to this, we launched Vid.ly, the first universal video URL to enable content providers to deliver video seamlessly to everyone.”

The second big question: How much will we save by moving to the cloud, and what will it cost? This is where due diligence is key: A content creator must know its bandwidth and format requirements, before it can accurately decide if a third-party provider is a good idea or not.

“When comparing bandwidth costs, it is important to examine the entire workflow,” notes Zencoder’s Dahl. For instance, “Transferring large mezzanine files to the cloud isn’t free, but it is sometimes cheaper to transfer one large file to the cloud for transcoding; rather than transferring a dozen smaller files to a CDN or syndication partners.”

Finally, you need to know how resilient a third-party provider’s cloud infrastructure actually is. Is it truly redundant? Are there multiple cloud-based servers and pathways in place to keep your content moving, even if the third-party provider has suffered a catastrophic failure? Or will your content become inaccessible in multiple formats?

Encoding.com, for example, is integrated in Amazon Web Services and the Rackspace Cloud, providing redundancy and immediate failover should one cloud experience any issues. “Without integrations into both public clouds, we would not be able to offer a meaningful SLA (service level agreement),” says Malkin.

These factors, plus the financial health of the cloud providers being considered, need to be weighed before moving encoding/ transcoding off-premises.

“We understand that selecting a cloud transcoding service is often a major decision for any organization, and we encourage our potential clients to weigh the benefits specifically for their needs,” says Quanstrom. “It is important to choose a provider that can provide cost-effective and high quality results, and especially a vendor who has a history of providing reliable service. As more video moves online and to the cloud, it is essential that an owner’s valuable content is handled by someone that can be trusted for the long term.”

The Bottom Line on Cloud Encoding

In this article, we have explored when video encoding/transcoding in the cloud makes sense, and when it does not. We have also weighed the possibility of using a hybrid in-house/cloud approach, and the factors that must be considered before moving your content off-premises.

All of this notwithstanding, it seems likely that the cloud is the future not just of content encoding/transcoding and distribution, but creation as well. In fact, as cloud-based systems grow in size and capabilities, as per-gigabyte cloud-based costs decline in comparison to in-house server farm costs, and as increasing bandwidth speeds continue to reduce bottlenecks experienced by large file transfers, the day may well come when in-house facilities of any kind make little sense.

Should this happen, it may be cheaper and faster to store raw footage and effects on the cloud, calling them back to your own workstation only when needed. In fact, someday we may view the idea of local storage as being as quaint as booting one’s computer from a floppy disk, rather than a hard drive.

In the meantime, content creators need to look carefully at video encoding/transcoding in the cloud, to see if this solution will work for them. Chances are it will, reducing your internal costs while maximizing format flexibility and content distribution.

This article first appeared in the June/July 2012 issue of Streaming Media under the title "Video in the Cloud."